FDIC Consumer News

Spring 2014

Person-to-Person (P2P) Payments Online: What to Know Before You Click and Send That Money

When it comes time to pay the babysitter or reimburse a friend for lunch, most people use cash or write checks. But an increasing number of others instead turn to their computer or smartphone to make a person-to-person or "P2P" payment.

P2P payments can be convenient, but there are potential costs and risks, in areas such as the privacy of your personal information. FDIC Consumer News first introduced readers to P2P payments in 2011, and now we are offering our latest suggestions.

How a P2P service works: Banks and other companies offer different P2P payment services. Most share certain features: You establish an online account and designate one or more payment sources (such as your checking account, credit card or prepaid card) that you'll use to pay people. To send money to someone, you'll provide the recipient's information — in many cases, his or her e-mail address. To get money from someone, you may need to provide your bank account information or other details to the sender's P2P service provider.

"P2P payments may be convenient — for both the sender and the recipient — but if you or your recipient will have to jump through a lot of hoops to use it, that promise of convenience can suddenly fade," said Elizabeth Khalil, a Senior Policy Analyst at the FDIC.

Fees: There are numerous possibilities. Is there a fee to sign up? A fee to send money? A fee to receive money? Is there a single, fixed transaction fee for a service or is it calculated as a percentage of the transaction amount?

"Shop around to find a service with costs that seem reasonable," Khalil recommended. "And if you are the recipient and the fee to receive money seems high, don't be shy about telling the sender you would prefer to be paid another way."

Privacy: Be aware of the service's privacy practices and how your information — and that of your recipients — will be used. If you decide to use the service, set all available privacy settings to your preferences. Some services may, for example, share certain aspects of your transaction activity with other users, such as your social media "friends." If you don't want that to happen, evaluate whether the service's privacy settings allow you to turn off that feature. Because a P2P service provider's privacy practices can change, periodically check its policies and your privacy settings to ensure they still are set in the way you want.

Funds availability: Know when the money you send will be charged to your credit card or deducted from your account. Also be clear on when that money will be available to the recipient. "It may be quick to make a P2P payment, but that doesn't mean the recipient can access the funds right away," said Khalil. "When money is available can vary depending on which P2P service you're using."

Your rights and dispute resolution: Know what the service's user agreement says about resolving errors and disputes. For example, what will happen if the service pays the wrong person or the wrong amount? And, what if you caused the error by mistyping the recipient's e-mail address or the amount you wanted to send? That can easily happen, especially when you're typing on a small mobile phone.

"If the payment is drawn from your checking or savings account, or a credit card, you will have rights under federal law to have the error resolved," said Richard Schwartz, Counsel in the FDIC's Legal Division. "But if the payment comes from somewhere else, like funds you have on hold in an account with the payment service provider, you might not have the same legal protections. Instead, you might have to rely on the service's own policies or perhaps state laws applicable to money transfers. In any case, find out what the service provider's user agreement says will happen if something goes wrong."

Bank or nonbank: "If you're interested in using P2P payments, ask your bank whether it offers the service. And if your bank doesn't, try other banks," Khalil said. "While a number of non-bank companies also offer P2P payments, there can be benefits to working with a bank, such as the opportunity to maintain a financial relationship and obtain other products and services at reasonable rates." another potential benefit is that funds held in your bank account are FDIC-insured, which may not be the case with a nonbank P2P account.